Barack Obama Free Trade Watch List
Vision Of International Cooperation Encourages Global Economic Hope
Dec 1, 2008
After the former Illinois senator takes over the oval office on January 20, 2009, economists around the world will be watching to see whether Barack Obama will continue to open the American economy to global trade or follow outdated protectionist policies as a way to combat the U.S. financial crisis.
On the campaign trail, Obama expressed his desire to renegotiate the North American Free Trade Agreement (NAFTA) to better protect the interests of American workers. The protectionist tone of these speeches galvanized trading block partners Canada and Mexico to consider retaliatory measures.
Below are policy actions that serve as a watch list of early indicators for Barack Obama’s game plan to avoid protectionism in global trade matters.
Rescues Colombia Free Trade Agreement
Overcoming labor abuse and guerilla warfare issues, Obama successfully negotiates the reduction of heavy Colombian tariffs and taxes on American imports via a Free Trade Agreement with Colombia. Currently American exports to Colombia are subject to duties and taxes that range from 10% to 20%.
Expands NAFTA Free Trade Provisions
Obama renegotiates NAFTA without raising tariff rates or imposing non-tariff barriers including onerous documentation requirements and shipping wait times. Obama instead focuses on facilitating further free trade agreements on services where American firms are more competitive.
Launches Large-Scale Multinational Projects
Obama agrees to collaborate with manufacturing countries such as China, India and India to establish multinational projects including infrastructure development that benefit all participating trade countries.
Strengthens Exporter and Importer Financing
Obama introduces small and medium-business financing for American exporters and importers, thus encouraging innovation in international trade markets.
Encourages Global Synergies
Obama empowers commercial diplomats that work as Trade Commissioner Services attached to American embassies to more aggressively increase trade between the U.S. and other countries. This includes alliances, direct and indirect investments, joint ventures and partnerships.
Protectionism Leads To Further Global Economic Pain
Like his Democratic predecessor Bill Clinton, Barack Obama is likely to avoid protectionist impulses after he become president. A voracious reader and astute student of economic history, Barack Obama recently acknowledged that governments around the globe made the Depression more intense and long-lasting by raising trade barriers.
Back in the 1930s, high U.S. tariffs made Canadian wheat deliveries to America less competitively priced than local American crops. Fewer export sales reduced Canadian farmers’ income. With less money in their pockets, agriculture workers north of the border were constrained from buying merchandise including U.S. goods. Similarly, retaliatory Canadian tariffs on U.S. manufactured goods reduced the cash flows to American workers who may have otherwise purchased Canadian wheat.
These days, the global economy is even more interrelated. Workers in China and India earn a large part of their income selling products to the United States and Canada. Any slowdown in the North American economy has a direct negative impact on workers’ wages in the supplying Asian countries.
Not that protectionism didn’t have its day.
Old School Mercantilist System No Longer Works
Championed by Adam Smith’s The Wealth of Nations (1776), mercantilism was the dominant economic theory from the 1500s to the 1700s. Mercantilism is characterized by significant government intervention and control over market economies.
The reason that the mercantile system doesn’t work in today’s global economy is that mercantilism discourages imports particularly through the use of tariffs. Mercantilism assumes that the prosperity of a nation depends on the country’s capital assets, and that the volume of the world economy and its international trade are interchangeable.
But in those days, capital assets were represented by the value of gold, silver and overall trade commodity sales. A wealthy country had a positive value for its net exports (exports minus imports). A poor country had a negative net export value. This outdated theory suggests that the ruling government could advance their goals by adopting a protectionist role in the economy, encouraging exports and discouraging imports.
Obama Leadership By Example
Mercantilism was profitable in the short term for countries competing in the 16th to 18th centuries. More often than not, the mercantilist system led to trade wars.
To reinstate American leadership in the modern global economy, Barack Obama must lead by example to prove that coordinated action beats unilateralism and protectionism.
